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October and November Jobs Data Give Mixed Picture of the Labor Market

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Because of the federal government shutdown from October 1 to November 12, the regular release by the Bureau of Labor Statistics (BLS) of its monthly “Employment Situation” report (often called the “jobs report”) has been disrupted. The jobs report usually has two estimates of the change in employment during the month: one estimate from the establishment survey, often referred to as the payroll survey, and one from the household survey. As we discuss in Macroeconomics, Chapter 9, Section 9.1 (Economics, Chapter 19, Section 19.1), many economists and Federal Reserve policymakers believe that employment data from the establishment survey provide a more accurate indicator of the state of the labor market than do the household survey’s employment data and unemployment data. (The groups included in the employment estimates from the two surveys are somewhat different, as we discuss in this post.)

Today, the BLS released a jobs report that has data from the payroll survey for both October and November, but data from the household survey only for November. Because of the government shutdown, the household survey for October wasn’t conducted.

According to the establishment survey, there was a net decrease of 105,000 nonfarm jobs in October and a net increase of 64,000 nonfarm jobs in November. The increase for November was above the increase of 40,000 that economists surveyed by FactSet had forecast. Economists surveyed by the Wall Street Journal had forecast a net increase of 45,000 jobs. The BLS revised downward by a combined 33,000 jobs its previous estimates of employment in August and September. (The BLS notes that: “Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.”)

The following figure from the jobs report shows the net change in nonfarm payroll employment for each month in the last two years. The figure illustrates that, as the BLS notes in the report, nonfarm payroll employment “has shown little net change since April.” The Trump administration announced sharp increases in U.S. tariffs on April 2. Media reports indicate that some firms have slowed hiring due to the effects of the tariffs or in anticipation of those effects. In addition, a sharp decline in immigration has slowed growth in the labor force.

The unemployment rate estimate relies on data collected in the household survey, so there id no unemployment estimate for October. As shown in the following figure, the unemployment rate increased from 4.4 percent in September to 4.6 percent in November, the highest rate since September 2021. The unemployment rate is above the 4.4 percent rate economists surveyed by FactSet had forecast. The unemployment rate had been remarkably stable, staying between 4.0 percent and 4.2 percent in each month from May 2024 to July 2025, before breaking out of that range in August. The Federal Open Market Committee’s current estimate of the natural rate of unemployment—the normal rate of unemployment over the long run—is 4.2 percent. So, unemployment is now well above the natural rate. (We discuss the natural rate of unemployment in Macroeconomics, Chapter 9 and Economics, Chapter 19.)

As the following figure shows, the monthly net change in jobs from the household survey moves much more erratically than does the net change in jobs from the establishment survey. As measured by the household survey, there was a net increase of 96,000 jobs from September to November. In the payroll survey, there was a net decrease in of 41,000 jobs from September to November. In any particular month, the story told by the two surveys can be inconsistent. In this case, we are measuring the change in jobs over a two month interval because there is no estimate from the household survey of employment in October. Over that two month period the household survey is showing more strength in the labor market than is the payroll survey. (In this blog post, we discuss the differences between the employment estimates in the two surveys.)

The household survey has another important labor market indicator: the employment-population ratio for prime age workers—those workers aged 25 to 54. In November the ratio was 80.6 percent, down slightly from 80.7 in September. (Again, there is no estimate for October.) The prime-age employment-population ratio is somewhat below the high of 80.9 percent in mid-2024, but is still above what the ratio was in any month during the period from January 2008 to February 2020. The continued high levels of the prime-age employment-population ratio indicates some continuing strength in the labor market.

The Trump Administration’s layoffs of some federal government workers are clearly shown in the estimate of total federal employment for October, when many federal government employees exhausted their severance pay. (The BLS notes that: “Employees on paid leave or receiving ongoing severance pay are counted as employed in the establishment survey.”) As the following figure shows, there was a decline federal government employment of 162,000 in October, with an additional decline of 6,000 In November. The total decline since the beginning of February 2025 is 271,000. At this point, we can say that the decline in federal employment has had a significant effect on the overall labor market and may account for some of the rise in the unemployment rate.

The establishment survey also includes data on average hourly earnings (AHE). As we noted in this post, many economists and policymakers believe the employment cost index (ECI) is a better measure of wage pressures in the economy than is the AHE. The AHE does have the important advantage of being available monthly, whereas the ECI is only available quarterly. The following figure shows the percentage change in the AHE from the same month in the previous year. The AHE increased 3.5 percent in November, down from 3.7 percent in October.

The following figure shows wage inflation calculated by compounding the current month’s rate over an entire year. (The figure above shows what is sometimes called 12-month wage inflation, whereas this figure shows 1-month wage inflation.) One-month wage inflation is much more volatile than 12-month wage inflation—note the very large swings in 1-month wage inflation in April and May 2020 during the business closures caused by the Covid pandemic. In November, the 1-month rate of wage inflation was 1.6 percent, down from 5.4 percent in October. This slowdown in wage growth may be an indication of a weakening labor market. But one month’s data from such a volatile series may not accurately reflect longer-run trends in wage inflation.

What effect might today’s jobs report have on the decisions of the Federal Open Market Committee (FOMC) with respect to setting its target range for the federal funds rate? Today’s jobs report provides a mixed take on the state of the labor market with very slow job growth—although the large decline in federal employment is a confounding factor—a continued high employment-population ratio for prime age workers, and slowing wage growth.

Three Dissents as the FOMC Cuts Its Target for the Federal Funds Rate

Photo from federalreserve.gov

Today’s meeting of the Federal Reserve’s policymaking Federal Open Market Committee (FOMC) had the expected result with the committee deciding to lower its target for the federal funds rate from a range of 3.75 percent to 4.00 percent to a range of 3.50 percent to 3.75 percent—a cut of 25 basis points. The members of the committee voted 9 to 3 in favor of the cut. Fed Governor Stephen Miran voted against the action, preferring to lower the target range for the federal funds rate by 50 basis points. President Austan Goolsbee of the Federal Reserve Bank of Chicago and President Jeffrey Schmid of the Federal Reserve Bank of Kansas City also voted against the action, preferring to leave the target range unchanged.

The following figure shows for the period since January 2010, the upper bound (the blue line) and the lower bound (the green line) for the FOMC’s target range for the federal funds rate, as well as the actual values for the federal funds rate (the red line). Note that the Fed has been successful in keeping the value of the federal funds rate in its target range. (We discuss the monetary policy tools the FOMC uses to maintain the federal funds rate within its target range in Macroeconomics, Chapter 15, Section 15.2 (Economics, Chapter 25, Section 25.2).)

After the meeting, the committee also released a “Summary of Economic Projections” (SEP)—as it typically does after its March, June, September, and December meetings. The SEP presents median values of the 19 committee members’ forecasts of key economic variables. The values are summarized in the following table, reproduced from the release. (Note that only 5 of the district bank presidents vote at FOMC meetings, although all 12 presidents participate in the discussions and prepare forecasts for the SEP.)

There are several aspects of these forecasts worth noting:

Compared with September, the committee members increased their forecasts of real GDP growth for each year from 2025 through 2027. The increase for 2026 was substantial, from 1.8 percent to 2.3 percent, although some of this increase was attributable to the federal government shutdown causing some economic output to be shifted from 2025 to 2026. Committee members slightly decreased their forecasts of the unemployment rate in 2027. They left their forecast of the unemployment rate in the fourth quarter of 2025 unchanged at 4.5 percent.
Committee members reduced their forecasts for personal consumption expenditures (PCE) price inflation for 2025 and 2026. Similarly, their forecasts of core PCE inflation for 2025 and 2026 were also reduced. The committee does not expect that PCE inflation will decline to the Fed’s 2.0 percent annual target until 2028.
The committee’s forecasts of the federal funds rate at the end of each year from 2025 through 2028 were unchanged.

Prior to the meeting there was much discussion in the business press and among investment analysts about the dot plot, shown below. Each dot in the plot represents the projection of an individual committee member. (The committee doesn’t disclose which member is associated with which dot.) Note that there are 19 dots, representing the 7 members of the Fed’s Board of Governors and all 12 presidents of the Fed’s district banks.

The plots on the far left of the figure represent the projections by the 19 members of the value of the federal funds rate at the end of 2025. The fact that several members of the committee preferred that the federal funds rate end 2025 above 4 percent—in other words higher than it will be following the vote at today’s meeting—indicates that several non-voting district bank presidents, beyond Goolsbee and Schmid, would have preferred to not cut the target range. The plots on the far right of the figure indicate that there is substantial disagreement among comittee members as to what the long-run value of the federal funds rate—the so-called neutral rate—should be.

During his press conference following the meeting, Powell indicated that the increase in inflation in recent months was largely due to the effects of the increase in tariffs on goods prices. Powell indicated that committee members expect that the tariff increases will cause a one-time increase in the price level, rather than causing a long-term increase in the inflation rate. Powell also noted the recent slow growth in employment, which he noted might actually be negative once the Bureau of Labor Statistics revises the data for recent months. This slow growth indicated that the risk of unemployment increasing was greater than the risk of inflation increasing. As a result, he said that the “balance of risks” caused the committee to believe that cutting the target for the federal funds rate was warranted to avoid the possibility of a significant rise in the unemployment rate.

The next FOMC meeting is on January 27–28. By that time a significant amount of new macroeconomic data, which has not been available because of the government shutdown, will have been released. It also seems likely that President Trump will have named the person he intends to nominate to succeed Powell as Fed chair when Powell’s term ends on May 15, 2026. (Powel’s term on the Board doesn’t end until January 31, 2028, although he declined at the press conference to say whether he will serve out the remainder of his term on the Board after he steps down as chair.) In addition, it’s possible that by the time of the next meeting the Supreme Court will have ruled on whether President Trump can legally remove Governor Lisa Cook from the Board and on whether President Trump’s tariff increases this year are Constitutional.

PCE Inflation Increases Slightly in September

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Today (December 5), the Bureau of Economic Analysis (BEA) released monthly data on the personal consumption expenditures (PCE) price index for September as part of its “Personal Income and Outlays” report. Release of the report was delayed by the federal government shutdown.

The following figure shows headline PCE inflation (the blue line) and core PCE inflation (the red line)—which excludes energy and food prices—with inflation measured as the percentage change in the PCE from the same month in the previous year. In September, headline PCE inflation was 2.8 percent, up slightly from 2.7 percent in August. Core PCE inflation in September was also 2.8 percent, down slightly from 2.9 percent in August. Both headline and core PCE inflation were equal to the forecast of economists surveyed.

The following figure shows headline PCE inflation and core PCE inflation calculated by compounding the current month’s rate over an entire year. (The figure above shows what is sometimes called 12-month inflation, while the figure below shows 1-month inflation.) Measured this way, headline PCE inflation increased from 3.1 percent in August to 3.3 percent in September. Core PCE inflation declined from 2.7 percent in August to 2.4 percent in September. So, both 1-month and 12-month PCE inflation are telling the same story of inflation somewhat above the Fed’s target. The usual caution applies that 1-month inflation figures are volatile (as can be seen in the figure). In addition, these data are for September and likely don’t fully reflect the situation nearly two months later.

Fed Chair Jerome Powell has frequently mentioned that inflation in non-market services can skew PCE inflation. Non-market services are services whose prices the BEA imputes rather than measures directly. For instance, the BEA assumes that prices of financial services—such as brokerage fees—vary with the prices of financial assets. So that if stock prices fall, the prices of financial services included in the PCE price index also fall. Powell has argued that these imputed prices “don’t really tell us much about … tightness in the economy. They don’t really reflect that.” The following figure shows 12-month headline inflation (the blue line) and 12-month core inflation (the red line) for market-based PCE. (The BEA explains the market-based PCE measure here.)

Headline market-based PCE inflation was 2.6 percent in September, up from 2.4 percent in August. Core market-based PCE inflation was 2.6 percent in September, unchanged from August. So, both market-based measures show inflation as stable but above the Fed’s 2 percent target.

In the following figure, we look at 1-month inflation using these measures. One-month headline market-based inflation increase sharply to 3.7 percent in September from 2.6 percent in August. One-month core market-based inflation increased to 2.7 percent in September from 2.0 percent in August. As the figure shows, the 1-month inflation rates are more volatile than the 12-month rates, which is why the Fed relies on the 12-month rates when gauging how close it is coming to hitting its target inflation rate.

Data on real personal consumption expenditures were also included in this report. The following figure shows compound annual rates of growth of real real personal consumptions expenditures for each month since January 2023. Measured this way, the growth in real personal consumptions expenditures slowed sharply in September to 0.5 percent from 3.0 percent in August.

Does the slowing in consumptions spending indicate that real GDP may have also grown slowly in the third quarter of 2025? Economists at the Federal Reserve Bank of Atlanta prepare nowcasts of real GDP. A nowcast is a forecast that incorporates all the information available on a certain date about the components of spending that are included in GDP. The Atlanta Fed calls its nowcast GDPNow. As the following figure from the Atlanta Fed website shows, today the GDPNow forecast—taking into account today’s data on real personal consumption expenditures—is for real GDP to grow at an annual rate of 3.5 percent in the third quarter, which reflects continuing strong growth in other measures of output.

In a number of earlier blog posts, we discussed the policy dilemma facing the Fed. Despite the Atlanta Fed’s robust estimate of real GDP growth, there are some indications that the labor market may be weakening. For instance, earlier this week ADP estimated that private sector employment declined by 32,000 jobs in November. (We discuss ADP’s job estimates in this blog post.) As the Fed’s policy-making Federal Open Market Committee (FOMC) prepares for its next meeting on December 9–10, it has to balance guarding against a potential decline in employment with concern that inflation has not yet returned to the Fed’s 2 percent annual target.

If the committee decides that inflation is the larger concern, it is likely to leave its target range for the federal funds rate unchanged. If it decides that weakness in the labor market is the larger concern, it is likely to reduce it target range by 0.25 percentage point (25 basis points). Statements by FOMC members indicate that opinion on the committee is divided. In addition, the Trump administration has brought pressure on the committee to cut its target rate.

One indication of expectations of future changes in the FOMC’s target for the federal funds rate comes from investors who buy and sell federal funds futures contracts. (We discuss the futures market for federal funds in this blog post.) Investors’ expectations have been unusually volatile during the past two months as new macroeconomic data or new remarks by FOMC members have caused swings in the probability that investors assign to the committee cutting the target range.

As of this afternoon, investors assigned a 87.2 percent probability to the committee cutting its target range for the federal funds rate by 25 basis points to 3.50 percent to 3.75 percent at its December meeting. At the December meeting the committee will also release its Summary of Economic Projections (SEP) giving members forecasts of future values of the inflation rate, the unemployment rate, the federal funds rate, and the growth rate of real GDP. The SEP, along with Fed Chair Powell’s remarks at his press conference following the meeting, should provide additional information on the monetary policy path the committee intends to follow in the coming months.

Is the Price of a Thanksgiving Dinner Higher this Year? It Depends on What Side Dishes You Serve.

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A perennial media story this time of year looks at whether a Thanksgiving turkey dinner costs more or less than last year. Not too surprisingly, the answer depends on what side dishes you serve with the turkey. Deloitte provides tax, consulting, and other services to businesses. Their calculation of the cost of a Thanksgiving dinner over the past three years can be found here.

The following image shows the food that they include in their cost calculation. For that particular Thanksgiving dinner, the cost is slightly higher than in 2024, although slightly lower than in 2023.

Image from deloitte.com

The following image from the American Farm Bureau Federation, a lobbying organization for U.S. farmers, shows the food they include in their calculation of the cost of a Thanksgiving dinner.

Image from fb.org

For a Thanksgiving dinner with those side dishes, the price is about 5 percent lower this year than last year.

Image from fb.org

Note that the two estimates differ in the cost of the turkey. It’s not clear whether the difference is due to the size of the turkey or to differences in the price of the turkey. Related point: The Bureau of Labor Statistics (BLS) stopped collecting data on retail turkey prices in February 2020, at the start of the pandemic, and never resumed collecting them. Here’s the link to the BLS retail turkey price series on FRED. The series begins in January 1980 and ends in February 2020.

Justin Fox, in a column on bloomberg.com, notes that demand for turkey has been declining in recent years. The following figure uses data on turkey consumption per capita from the U.S. Department of Agriculture.

Turkey consumption peaked at 18.2 pounds per person in 1996 and has fallen to an estimated 13.1 pounds per person in 2025—a decline of about 28 percent. Is this decline an indication that people have moved away from eating turkey for Thanksgiving? Fox argues that it likely doesn’t. Note the rapid rise of turkey consumption between 1980 and 1990. Fox believes the surge in consumption was due to “both chicken and turkey [consumption increasing] as health concerns led many Americans to shun red meat starting in the late 1970s ….” In recent years, though, “red-meat consumption has steadied … chicken consumption has continued to rise, and turkey is losing out. Maybe people just don’t like how it tastes.” Glenn and Tony agree that, alas, turkey is often dry—although, admittedly, skilled cooks claim that it isn’t dry when prepared properly.

So, turkey may be holding its own at the heart of Thanksgiving dinners, but seems to be struggling to get on the menu during the rest of the year.

When John Williams Speaks … Investors Listen

Photo of Federal Reserve Bank of New York President John Williams from newyorkfed.org

Many economists consider the three most influential people at the Federal Reserve to be the chair of the Board of Governors, the vice-chair of the Board of Governors, and the president of the Federal Reserve Bank of New York. The influence of the New York Fed president is attributable in part to being the only president of a District Bank to be a voting member of the Federal Open Market Committee (FOMC) every year and to the New York Fed being the location of the Open Market Desk, which is charged with implementing monetary policy. The Open Market Desk undertakes open market operations—buying and selling Treasury securities—and conducts repurchase agreements (repos) and reverse repurchase agreements (reverse repos) with the aim of keeping the federal funds rate within the target range specified by the FOMC. (We discuss the mechanics of how monetary policy is conducted in Macroeconomics, Chapter 15, Economics, Chapter 25, and Money, Banking, and the Financial System, Chapter 15.)

John Williams has served as president of the New York Fed since 2018. Given his important role in the formulation and execution of monetary policy, investors pay close attention to his speeches and other public remarks looking for clues about the likely future path of monetary policy. As we noted yesterday in a post discussing the latest jobs report, Fed watchers were uncertain as to whether the FOMC would cut its target for the federal funds rate at its next meeting on December 9–10.

Yesterday morning, investors who buy and sell federal funds futures contracts assigned a probability of 39.6 percent to the FOMC cutting its target range for the federal funds rate by 0.25 percentage point (25 basis points) from 3.75 percent to 4.00 to 3.50 percent to 3.75 percent. Today in a speech delivered at the Central Bank of Chile, John Williams stated that:”I still see room for a further adjustment in the near term to the target range for the federal funds rate to move the stance of policy closer to the range of neutral, thereby maintaining the balance between the achievement of our two goals” of maximum employment and price stability.

Investors interpreted this statement as indicating that Williams would support cutting the target range for the federal funds rate at the December FOMC meeting. Given his position on the committee, it seemed unlikely that Williams would have publicly supported a rate cut unless he believed that a majority of the committee would also support it. As the following figure shows, after the text of Williams’s speech was released this morning, investors in the federal funds futures market increased the probability they assigned to a rate cut to 69.4 percent. That movement in the federal funds futures market was a recognition of the important role the president of the New York Fed plays in formulating monetary policy.

Congratulations to Pace University for Winning the 2025 College Fed Challenge

Photo from federalreserve.gov of the Pace University Fed Challenge team and their faculty advisers

Each year the Federal Reserve sponsors a competition among college student teams. As desribed on the Fed’s website, in the competition “Teams analyze economic and financial conditions and formulate a monetary policy recommendation, modeling the Federal Open Market Committee.”

This year’s winner is Pace University, representing the New York Federal Reserve District. Harvard College took second place and the University of California, Los Angeles took third place. The University of Pennsylvania, the University of Chicago, and Davidson College received honorable mentions. In 2024, the competition was won by the team from Princeton University, representing the Philadelphia Federal Reserve District.

This year, 139 colleges in 36 states participated in the competition. The rules of the competition are described here. After the competition, Federal Reserve Chair Jerome Powell noted that: “Fed Challenge offers undergraduate students an opportunity to learn firsthand about monetary policy and the work of the Federal Reserve. I thank these students for the dedication, creativity, and analytical skills they demonstrated as they grappled with real-world economic challenges.”

Surprisingly Strong September Jobs Report

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If not for the shutdown of the federal government, the Bureau of Labor Statistics (BLS) would have already released its “Employment Situation” report (often called the “jobs report”) for September and October by now. The September jobs report was released today based largely on data collected before the shutdown.

The jobs report has two estimates of the change in employment during the month: one estimate from the establishment survey, often referred to as the payroll survey, and one from the household survey. As we discuss in Macroeconomics, Chapter 9, Section 9.1 (Economics, Chapter 19, Section 19.1), many economists and Federal Reserve policymakers believe that employment data from the establishment survey provide a more accurate indicator of the state of the labor market than do the household survey’s employment data and unemployment data. (The groups included in the employment estimates from the two surveys are somewhat different, as we discuss in this post.)

Because the household survey wasn’t conducted in October, the data in the October report that relies on the household survey won’t be included when the BLS releases establishment employment data for October on December 16. The data for September released today showed the labor market was stronger than expected in that month.

According to the establishment survey, there was a net increase of 119,00 nonfarm jobs during September. This increase was well above the increase of 50,000 that economists surveyed by FactSet had forecast. Economists surveyed by the Wall Street Journal had also forecast a net increase of 50,000 jobs. The relatively large increase in employment in September was partially offset by the BLS revising downward by a combined 33,000 jobs its previous estimates of employment in July and August. The estimate for August was revised from a net gain of 22,000 to a net loss of 4,000. (The BLS notes that: “Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.”)

The following figure from the jobs report shows the net change in nonfarm payroll employment for each month in the last two years. The figure makes clear the striking deceleration in job growth beginning in May. The Trump administration announced sharp increases in U.S. tariffs on April 2. Media reports indicate that some firms have slowed hiring due to the effects of the tariffs or in anticipation of those effects.

As shown in the following figure, the unemployment rate increased from 4.3 percent in August to 4.4 percent in September, the highest rate since October 2021. The unemployment rate is above the 4.3 percent rate economists surveyed by FactSet had forecast. The unemployment rate had been remarkably stable, staying between 4.0 percent and 4.2 percent in each month from May 2024 to July 2025, before breaking out of that range in August. In September, the members of the Federal Open Market Committee (FOMC) forecast that the unemployment rate during the fourth quarter of 2025 would average 4.5 percent. The FOMC’s current estimate of the natural rate of unemployment—the normal rate of unemployment over the long run—is 4.2 percent. (We discuss the natural rate of unemployment in Macroeconomics, Chapter 9 and Economics, Chapter 19.)

Each month, the Federal Reserve Bank of Atlanta estimates how many net new jobs are required to keep the unemployment rate stable. Given slower growth in the working-age population due to the aging of the U.S. population and a sharp decline in immigration, the Atlanta Fed currently estimates that the economy would have to create 111,878 net new jobs each month to keep the unemployment rate stable at 4.4 percent. If this estimate is accurate, if the average monthly net job increase from May through September of 38,600 were to continue, the result would be a rising unemployment rate.

As the following figure shows, the monthly net change in jobs from the household survey moves much more erratically than does the net change in jobs from the establishment survey. As measured by the household survey, there was a net increase of 251,000 jobs in September, following a net increase of 288,000 jobs in August. As an indication of the volatility in the employment changes in the household survey note the very large swings in net new jobs in January and February. In any particular month, the story told by the two surveys can be inconsistent. as was the case in September with employment increasing much more in the household survey than in the employment survey. (In this blog post, we discuss the differences between the employment estimates in the two surveys.)

The household survey has another important labor market indicator: the employment-population ratio for prime age workers—those aged 25 to 54. In September the ratio was 80.7 percent, the same as in August. The prime-age employment-population ratio is somewhat below the high of 80.9 percent in mid-2024, but is still above what the ratio was in any month during the period from January 2008 to February 2020. The continued high levels of the prime-age employment-population ratio indicates strength in the labor market.

It is still unclear how many federal workers have been laid off since the Trump Administration took office. The establishment survey shows a decline in federal government employment of 3,000 in September and a total decline of 97,000 since the beginning of February 2025. However, the BLS notes that: “Employees on paid leave or receiving ongoing severance pay are counted as employed in the establishment survey.” It’s possible that as more federal employees end their period of receiving severance pay, future jobs reports may report a larger decline in federal employment. To this point, the decline in federal employment has had only a small effect on the overall labor market.

The following figure shows wage inflation calculated by compounding the current month’s rate over an entire year. (The figure above shows what is sometimes called 12-month wage inflation, whereas this figure shows 1-month wage inflation.) One-month wage inflation is much more volatile than 12-month wage inflation—note the very large swings in 1-month wage inflation in April and May 2020 during the business closures caused by the Covid pandemic. In September, the 1-month rate of wage inflation was 3.0 percent, down from 5.1 percent in August. This slowdown in wage growth may be an indication of a weakening labor market. But one month’s data from such a volatile series may not accurately reflect longer-run trends in wage inflation.

What effect might today’s jobs report have on the decisions of the Federal Reserve’s policymaking Federal Open Market Committee (FOMC) with respect to setting its target range for the federal funds rate? The minutes from the FOMC’s last meeting on October 28–29 indicate that committee members had “strongly differing views” over whether to cut the target range by 0.25 percentage point (25 basis points) at its next meeting on December 9–10 or to leave the target range unchanged.

One indication of expectations of future changes in the FOMC’s target for the federal funds rate comes from investors who buy and sell federal funds futures contracts. (We discuss the futures market for federal funds in this blog post.) A month ago, investors assigned a 98.8 percent probability of the committee cutting its target range to 3.50 percent to 3.75 percent at its December meeting. Since that time indications have increased that output and employment growth have continued to be relatively strong and that inflation is stuck above the Fed’s 2 percent annual target. This morning, as the following figure shows, investors assign a probability of 60. 4 percent to the committee keeping its target unchanged at 3.75 percent to 4.00 percent at the December meeting. Committee members will also release their Summary of Economic Projections (SEP) at that meeting. The SEP, along with Fed Chair Powell’s remarks at his press conference following the meeting, should provide additional information on the monetary policy path the committee intends to follow in the coming months.

Solved Problem: Using the Demand and Supply Model to Analyze the Effects of a Tariff on Televisions

Supports: Microeconomics, Macroeconomics, Economics, and Essentials of Economics, Chapter 4, Section 4.4

Image generated by ChapGPT

The model of demand and supply is useful in analyzing the effects of tariffs. In Chapter 9, Section 9.4 (Macroeconomics, Chapter 7, Section 7.4) we analyze the situation—for instance, the market for sugar—when U.S. demand is a small fraction of total world demand and when the U.S. both produces the good and imports it.

In this problem, we look at the television market and assume that no domestic firms make televisions. (A few U.S. firms assemble limited numbers of televisions from imported components.) As a result, the supply of televisions consists entirely of imports. Beginning in April, the Trump administration increased tariff rates on imports of televisions from Japan, South Korea, China, and other countries. Tariffs are effectively a tax on imports, so we can use the analysis in Chapter 4, Section 4.4, “The Economic Effect of Taxes” to analyze the effect of tariffs on the market for televisions.

Use a demand and supply graph to illustrate the effect of an increased tariff on imported televisions on the market for televisions in the United States. Be sure that your graph shows any shifts of the curves and the equilibrium price and quantity of televisions before and after the tariff increase.
An article in the Wall Street Journal discussed the effect of tariffs on the market for used goods. Use a second demand and supply graph to show the effect of a tariff on imports of new televisions on the market in the United States for used televisions. Assume that no used televisions are imported and that the supply curve for used televisions is upward sloping.

Solving the Problem
Step 1: Review the chapter material. This problem is about the effect of a tariff on an imported good on the domestic market for the good. Because a tariff is a like a tax, you may want to review Chapter 4, Section 4.4, “The Economic Effect of Taxes.”

Step 2: Answer part a. by drawing a demand and supply graph of the market for televisions in the United States that illustrates the effect of an increased tariff on imported televisions. The following figure shows that a tariff causes the supply curve of televisions to shift up from S₁ to S₂. As a result, the equilibrium price increases from P₁ to P₂, while the equilibrium quantity falls from Q₁ to Q₂.

Step 2: Answer part b. by drawing a demand and supply graph of the market for used televisions in the United States that illustrates the effect on that market of an increased tariff on imports of new televisions. Although the tariff on imported televisions doesn’t directly affect the market for used televisions, it does so indirectly. As the article from the Wall Street Journal notes, “Today, in the tariff era, demand for used goods is surging.” Because used televisions are substitutes for new televisions, we would expect that an increase in the price of new televisions would cause the demand curve for used televisions to shift to the right, as shown in the following figure. The result will be that the equilibrium price of used televisions will increase from P₁ to P₂, while the equilibrium quantity of used televisions will increase from Q₁ to Q₂.

To summarize: A tariff on imports of new televisions increases the price of both new and used televisions. It decreases the quantity of new televisions sold but increases the quantity of used televisions sold.

NEW! 11-07-25- Podcast – Authors Glenn Hubbard & Tony O’Brien discuss Tariffs, AI, and the Economy

Glenn Hubbard and Tony O’Brien begin by examining the challenges facing the Federal Reserve due to incomplete economic data, a result of federal agency shutdowns. Despite limited information, they note that growth remains steady but inflation is above target, creating a conundrum for policymakers. The discussion turns to the upcoming appointment of a new Fed chair and the broader questions of central bank independence and the evolving role of monetary policy. They also address the uncertainty surrounding AI-driven layoffs, referencing contrasting academic views on whether artificial intelligence will complement existing jobs or lead to significant displacement. Both agree that the full impact of AI on productivity and employment will take time to materialize, drawing parallels to the slow adoption of the internet in the 1990s.

The podcast further explores the recent volatility in stock prices of AI-related firms, comparing the current environment to the dot-com bubble and questioning the sustainability of high valuations. Hubbard and O’Brien discuss the effects of tariffs, noting that price increases have been less dramatic than expected due to factors like inventory buffers and contractual delays. They highlight the tension between tariffs as tools for protection and revenue, and the broader implications for manufacturing, agriculture, and consumer prices. The episode concludes with reflections on the importance of ongoing observation and analysis as these economic trends evolve.

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Pearson Economics · Hubbard OBrien Economics Podcast – 11-06-25 – Economy, AI, & Tariffs

Older People Have Become Relatively Wealthier While Younger People Have Become Relatively Less Wealthy

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There has been an ongoing debate about whether Millennials and people in Generation Z are better off or worse off economically than are Baby Boomers. Edward Wolff of New York University recently published a National Bureau of Economic Research (NBER) working paper that focuses on one aspect of this debate—how the wealth of households headed by someone 75 years and older changed relative to the wealth of households headed by someone 35 years and younger during the period from 1983 to 2022.

Wolff uses data from the Federal Reserve’s Survey of Consumer Finances to measure the wealth, or net worth, of people in these age groups—the market value of their financial assets minus the market value of their financial liabilities. He includes in his measure of assets the market value of people’s real estate holdings—including their homes—stocks and bonds, bank deposits, contributions to defined contribution pension funds, unincorporated businesses, and trust funds. He includes in his measure of liabilities people’s mortgage debt, consumer debt—including credit card balances—and other debt, such as educational loans. Because Wolff wants to focus on that part of wealth that is available to be spent on consumption, he refers to it as financial resources, and he excludes from his wealth measure the present value of future Social Security payments and the present value of future defined contribution pension benefits.

The following figure from Wolff’s paper shows that, using his definition, both median and mean wealth have increased substantially from 1987 to 2o22. Note that both measures of average wealth declined during the Great Recession and Global Financial Crisis of 2007–2009. Median wealth declined by nearly 44 percent between 2007 and 2010. That median wealth grew much faster than mean wealth over the whole period indicates that wealth inequality.

Although the average wealth of all age groups increased over this period, the relative wealth of households 75 years and older rose and the relative wealth of households 35 years and younger fell. The following figure from the NBER Digest illustrates this shift. The 75 and over age group increased its mean net worth from 5 percent greater than the mean net worth of the average household in 1983 to 55 percent of the mean net worth of the average household in 2022. In contrast, the 35 and under age group saw its mean new worth relative to the average household fall from 21 percent in 1983 to 16 percent in 2022. Note, though, that there is significant volatility over time in the relative wealth shares of the two age groups.

What explains the relative increase in wealth among households 75 and over and the relative decrease in wealth among households 35 and under? Wolff identifies three key factors:

“[T]he homeownership rate, total stocks directly and indirectly owned, and home mortgage debt. The homeownership rate is the same in the two years for the youngest group but falls relative to the overall rate, whereas it shoots up for the oldest group both in actual level and relative to the overall average. The value of stock holdings rises for both age groups but vastly more for the oldest households compared to the youngest ones and accounts for a substantial portion of the elderly’s relative wealth gains. Mortgage debt rises in dollar terms for both groups but considerably more in relative terms for the youngest group.”

Perhaps surprisingly, Wolff finds that “despite dire press reports, educational loans fail to appear as a significant factor” in explaining the decline in the relative wealth of younger households.